Business Bankruptcy Cases

We receive many calls from prospective clients regarding business debt problems. If you own a sole proprietorship, then a Chapter 7 or Chapter 13 bankruptcy filing can help you deal with your business and personal debt simultaneously. If your business is in the form of a corporation or a limited liability company, then Chapter 11 bankruptcy may be a good option for you to reorganize your business debts. However, Chapter 11 tends to be a very complicated and costly process and is generally only well suited for businesses that owe at least a few hundred thousand dollars in debts or have other major problems.

Keep in mind that even if the corporation or limited liability company files bankruptcy, the owners may have personal liability for some of the business debts based on personal guarantees or even the posting of personal assets for collateral. Many people are afraid that they will lose their business if they file bankruptcy protection. This is rarely the case. If you wish to keep your business and believe that it can be profitable, then there is almost always a bankruptcy option available to assist you.

The recent changes in the New York State exemptions allow small business owners to protect at least $10,000.00 in business assets and, perhaps, more. If the liquidation value of your business exceeds $10,000.00, then a Chapter 13 bankruptcy is probably an effective way for you to maintain control of the business while paying your debts over an extended period of time.

When we review your case, we will look for the most cost effective, efficient way for you to resolve your business debts. We have handled several hundred business bankruptcy cases in Rochester, Buffalo, and Western New York over the past two decades for a variety of different industries including:

home improvement contractors

restaurants and taverns

business consultants

automotive repair shops

retail shops

real estate development

local franchises

general contractors

self-employed truckers

hair stylists, beauty parlors

There are many types of business debts that bring people into our office. Most commonly, we encounter businesses with the following types of debt problems:

1. New York State sales tax. We often receive calls from retail businesses that are about to be shut down by the New York State sales tax department. If you are behind on sales tax debt, it is not uncommon for New York State to seize and padlock your business. We have seen this happen for debts of even less than $10,000.00.

2. Federal and State payroll taxes. If you owe the IRS or NYS money because you did not properly submit funds withheld from your employees’ paychecks, this is considered a “trust fund” tax. It is not the type of debt that can be discharged in bankruptcy, but if you have an operating business, there may be a bankruptcy option available for you to restructure the debt over an extended period of time. If we feel that you situation is better suited for an offer in compromise, we will refer you to a competent, local tax attorney to explore this option.

3. Bank loans. Many businesses incur significant bank debt to finance the opening or renovation of a business. These loans are typically secured by all of the personal property of the business, including bank accounts and accounts receivable. However, in a significant percentage of the cases, the value of the business assets is significantly lower than the amount owed to the bank or lender. In such cases, it may be possible to restructure the loans and even eliminate some of the principal balance.

4. Trade creditors. Almost all businesses rely on certain trade creditors to purchase inventory and supplies. While many vendors are willing to offer generous trade terms, at some point they will stop selling to you on credit if you are not paying your debt on time. Most types of bankruptcy will allow you to eliminate or restructure your existing trade debt. Although obviously the trade creditors will not be happy about the bankruptcy, they are very likely to continue to do business with you, at least on a cash basis. Since you already may be operating on a cash basis with these creditors, the bankruptcy may not affect your trade relationship.

5. Delinquent rent and mortgage payments. Many of our clients who own retail businesses are behind on their store rent or commercial mortgage payments when they come to our office. The bankruptcy process will often give a business owner an opportunity to catch up on delinquent rent payments or mortgage payments to prevent eviction or foreclosure proceedings. This type of relief is somewhat easier to accomplish for a sole proprietorship, but it is also available for corporations and limited liability companies in Chapter 11 cases.

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